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Analysis

A New Season of Innovation

Before he became President, then Senator Barack Obama famously said, “The real test is not whether you avoid this failure, because you won’t. It’s whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere.”

Before the pandemic, many manufacturing companies were already facing strong headwinds of change. Those that had not started down the path to smart factories and digitalization were struggling to keep up. Finding and retaining the talent to operate these new types of facilities put them on the competitive market with big tech. Political uncertainty made supply chains and costs unpredictable. And now we have a pandemic and downturn, to be quickly followed by a major U.S. election that could cause further disruption. A recent MAPI poll of manufacturing CEOs found that 81% say the result of the U.S. election will affect overall industry output.

It sounds dire, but positive change is already occurring. Learning from history, it is likely many of these changes will remain even when a vaccine is widely available, and we have found sufficient means to fight the virus.

A 2010 study by the Harvard Business Review analyzed 4,700 public companies that came out of three previous economic crisis periods and found that companies that deployed certain defensive and offensive tactics had the highest probability of success. These companies “reduce costs selectively by focusing more on operational efficiencies than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets.” A decade later, do these principles still hold true?

Babson University Professor Jay Rao notes, “In good times, companies get fat, dumb, and happy when it comes to innovation.” When crises happen, leaders emerge. “At its heart, entrepreneurial leadership is about problem solving.” How are leaders harnessing this innovative energy to help their people, communities, and companies to thrive out of these crises?

While thankfully currently unnecessary, big companies like Ford, General Motors, GE, and Philips were able to shift to making ventilators quickly. University students and healthcare workers put on their engineering hats and found ways to use one ventilator for multiple patients. New companies outside of healthcare and manufacturing created additional ventilator solutions.

Healthcare is just the tip of the iceberg.

As companies realize where they can maintain productivity and reduce costs, what will the future of work look like in manufacturing?

Facing large challenges is pushing some companies to a bias toward action and innovation. A recent McKinsey & Company study found that nearly 75% of executives believe the “COVID-19 crisis to be one of the biggest opportunities for growth in their industry.” Unfortunately, industrial is the least optimistic with only 38%, but industries like consumer packaged goods (79%), pharma and medical supplies (73%), and basic materials (50%) bring back the upswing.

Though budgets are tight, manufacturers are still investing in solutions for growth. A MAPI CEO survey found that 85% expect annual investment in smart factory to rise during the next year. The same survey also found that many leaders expect permanent design changes for safety as well as shrinking global operations. We’ve already witnessed employee roles at companies that no one thought could ever go remote, indeed, go remote – like Siemens global workforce.

M&A is also providing new opportunities to expand portfolios and grow businesses. A Harvard Business Review article notes that “History suggests…there will be a relatively short M&A window that opens as the COVID-19 crisis ends, during which bargains will be had by those with the liquidity and the risk tolerance to move quickly, and who have done their homework in advance.”

As the manufacturing sector continues to adapt and innovate, what’s next for your company?